How battery startups are trying to survive in tough times

UPDATED: The collapse of U.S. battery maker A123 Systems (s AONE) has come to symbolize the overly optimistic outlook for the demand for powerful but expensive lithium-ion batteries for electric vehicles, and it also serves as a warning to battery startups that it’ll probably be harder to raise money and take longer to make sales. “So many investors got burned, and it cast a cloud over the industry,” said Rick Wilmer, CEO of lithium-ion battery startup Leyden Energy, when I caught up with him at AlwaysOn’s GoingGreen conference in San Francisco earlier this week.

It’s not just those who gunned for the electric car, or even the emerging power grid market, that have experienced disappointment and shifted their focus. Wilmer tells us that Leyden has tweaked its plans over the past year, and is now focusing on the tablet market as well as providing batteries for gasoline cars with start-stop technology. Previously the startup was looking to sell batteries for laptops, and electric bicycles, and then wanted to move into newer and tougher ones like electric cars.

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Leyden had a deal with distributor Dr. Battery to sell cylindrical cell batteries, like the AA batteries in a flashlight, which it announced last year. But the company is no longer selling to Dr. Battery, said Wilmer, who became Leyden’s CEO earlier this year. The laptop market isn’t showing enough growth because consumers prefer thinner notebooks or tablets, and cylindrical cells also aren’t in demand for e-bikes, said Wilmer. UPDATE: Dr. Battery’s CFO, Fan Chun, told me that his company’s relationship with Leyden hasn’t ended. In fact, Leyden is still shipping cylindrical cells to a contract manufacturer hired by Dr. Battery to assemble the cells into battery packs.

But the company has been working on developing flat and rectangular pouch cells that fit into slimmer consumer electronics. Leyden more recently has announced an effort with chipmaker NVIDIA to design tablets, which they hope will catch the eyes of tablet makers. Leyden also is courting makers of chargers for smart phones and devices for personal Wi-Fi hot spots. The company is shipping its battery cells to customers, who have put those cells in consumer electronics, but Wilmer declined to disclose the brands or types of gadgets.

Leyden also is hoping to see its batteries in gasoline cars outfitted with stop-start technology, which use a battery pack to keep the air conditioning, radio and other electronics running while a car stops momentarily, say, at an intersection when the light turns red. The battery also kick-starts the engine after the light turns green. This technology could lead to 5-10 percent better fuel economy and lower tailpipe emissions and is starting to show up in Europe.

With the slow roll out of electric vehicles, going after more mature and reliable markets certainly makes a lot of sense. But competition in those segments already is intense. A123 also targeted the stop-start market and designed a battery pack for it. And there are non-lithium ion battery developers who are pushing their way into this still niche opportunity.

Then there is the question of how startups can compete with battery giants such as Panasonic and LG Chem who have long established their presence in the consumer electronics business and are no less interested in putting their products in cars. Incidentally, Sony apparently is looking to sell its lithium-ion battery business because it’s having trouble competing with other large battery makers, particularly those in Korea, Reuters reported. Panasonic also isn’t doing so well with its lithium-ion battery business.

The prospect will probably not get too much rosier for battery startups in the near future. Boston-Power, for example, has transformed itself into essentially a Chinese company, to take advantage of low cost financing and Chinese domestic markets. So the question is how many more battery developers will follow A123 into the bankruptcy court or get scooped up, perhaps cheaply, before reaching that point?

For the battery business to grow, electric cars will have to become a norm. The problem with electric vehicles is the extreme cost of the battery. In a gasoline system, you buy your energy as you go. In an electric car, a large portion of the energy expense is paid up front. What if there was a battery swap infastructure? What if we only had to pay for the use of the 5000 charge cycles at a time? Check out this great video on the topic at TEDhttp://www.ted.com/talks/shai_agassi_on_electric_cars.html

We’ve covered Better Place’s effort to popularize battery swapping. So far, the business model hasn’t proved to be a good idea. Cost remains an issue even with the battery swap. You are asking consumers to change their car fueling habit, and the proposition isn’t compelling yet: http://gigaom.com/cleantech/report-better-place-laying-off-hundreds/

Its very similar to solar and LEDs, you could purchase LFP 186560’s, ripped off A123 design, for about 25% of A123’s cost (<$200/kWh) in China for a couple years now. Knowing the manufacturing equipment and throughput utilized, its clear that those companies were selling below cost. China is playing a subsidies game and waiting out the competition by killing them on ASP. The difference from solar/LEDs this time around is that China learned not to go buck wild on capex and buy up the cheap assets of their fallen competitors.

And they were dismissive for good reasons But it also turns out to the be ONLY avenue. And since then Envia doing well. In some ways it is similar to solar. US panel manufacturers croak, but high tech IP like innovalight can make it.

On other notes, the guy speaking about natural gas later in the day ended up, weirdly, making the case for EVs. He said gas dispensers cost $4000, or more than home chargers. And that the cars come with a premium. So why not by electric and save on fuel too. CNG cars seem to be floating on hype adn hype alone.

Yeah, I thought about comparing it to solar because of the similarities in terms of over supply and too-optimistic outlook. But then I thought batteries are pervasive in our lives, so it’s not just a homogeneous and emerging market like solar (except for EVs/grid storage). Is there more of a parallel between batteries and chips? You have the giants that hog the microprocessor and memory chip market, and then you have startups coming up with something far better designs in other segments.